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Union Power, Minimum Wage Legislation, Endogenous Labor Supplies and Production

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  • Daniel Cardona
  • Fernando Sanchez Losada

    (Universitat de Barcelona)

Abstract

The objective of this work is to study the impact of the unions bargaining power on production and wages. We present a model where a competitive final good is produced through two substitutable intermediate goods, one produced by unskilled labor and the other by skilled labor. Potential workers decide at their cost to become skilled or unskilled and, thus, labor supplies are determined endogenously. We find that the reallocation of the labor supplies due to changes in the unskilled (or skilled) unions bargaining power may have a positive impact on the final goods production. At the same time, total labor earnings increase with the unskilled unions bargaining power if the final goods production increases too. We also show that the minimum wage legislation has e.ects similar to an increase in the bargaining power of the unskilled unions.

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Bibliographic Info

Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 105.

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Length: 27 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:bar:bedcje:2003105

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Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
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  1. Devereux, Michael B. & Lockwood, Ben, 1991. "Trade unions, non-binding wage agreements, and capital accumulation," European Economic Review, Elsevier, Elsevier, vol. 35(7), pages 1411-1426, October.
  2. Richard B. Freeman, 1980. "Unionism and the dispersion of wages," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 34(1), pages 3-23, October.
  3. Cahuc, Pierre & Michel, Philippe, 1996. "Minimum wage unemployment and growth," European Economic Review, Elsevier, Elsevier, vol. 40(7), pages 1463-1482, August.
  4. Richard B. Freeman, 1991. "How Much Has De-Unionisation Contributed to the Rise in Male Earnings Inequality?," NBER Working Papers 3826, National Bureau of Economic Research, Inc.
  5. Rebitzer, James B. & Taylor, Lowell J., 1995. "The consequences of minimum wage laws Some new theoretical ideas," Journal of Public Economics, Elsevier, Elsevier, vol. 56(2), pages 245-255, February.
  6. Kenneth A. Couch & David C. Wittenburg, 2001. "The Response of Hours of Work to Increases in the Minimum Wage," Southern Economic Journal, Southern Economic Association, vol. 68(1), pages 171-177, July.
  7. Amitava Dutt & Anindya Sen, 1997. "Union bargaining power, employment, and output in a model of monopolistic competition with wage bargaining," Journal of Economics, Springer, Springer, vol. 65(1), pages 1-17, February.
  8. Flug, Karnit & Galor, Oded, 1986. "Minimum Wage in a General Equilibrium Model of International Trade and Human Capital," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 149-64, February.
  9. De Fraja, Gianni, 1999. "Minimum Wage Legislation, Productivity and Employment," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 66(264), pages 473-88, November.
  10. Ramos Parreno, Jose Maria & Sanchez-Losada, Fernando, 2002. "The role of unions in an endogenous growth model with human capital," Journal of Macroeconomics, Elsevier, Elsevier, vol. 24(2), pages 171-192, June.
  11. Barth, Erling & Zweimuller, Josef, 1995. " Relative Wages under Decentralized and Corporatist Bargaining Systems," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 97(3), pages 369-84, September.
  12. de la Croix, David & Licandro, Omar, 1995. " Underemployment, Irreversibilities and Growth under Trade Unionism," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 97(3), pages 385-99, September.
  13. Kaufman, Roger T, 1989. "The Effects of Statutory Minimum Rates of Pay on Employment in Great Britain," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 99(398), pages 1040-53, December.
  14. Lemieux, Thomas, 1998. "Estimating the Effects of Unions on Wage Inequality in a Panel Data Model with Comparative Advantage and Nonrandom Selection," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 16(2), pages 261-91, April.
  15. Cahuc, P. & Saint-Martin, A. & Zylberberg, A., 2001. "The consequences of the minimum wage when other wages are bargained over," European Economic Review, Elsevier, Elsevier, vol. 45(2), pages 337-352, February.
  16. Palokangas, Tapio, 1996. "Endogenous growth and collective bargaining," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 20(5), pages 925-944, May.
  17. Chalkley, Martin, 1991. "Monopsony Wage Determination and Multiple Unemployment Equilibria in a Non-linear Search Model," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(1), pages 181-93, January.
  18. David Card, 1992. "The Effect of Unions on the Distribution of Wages: Redistribution or Relabelling?," NBER Working Papers 4195, National Bureau of Economic Research, Inc.
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